c the committee will come to order. without objection, the chair's authorized to declare a recess of the committee at any time. this hearing is entitled "promoting stability, reviewing the administration's deregulatory approach to financial stability." i want to inform all concerned that this meeting will end at 1:00 p.m. per the request of the secretary. i now recognize myself for four minutes to give an opening statement. so let me welcome back secretary mnuchen. today we are here to discuss the trump administration's actions

that have undermined and not promoted our nation's financial stability. as i have said many times before, i am very concerned about this administration's actions to eliminate important protections for consumers, investors and our economy. it appears that our banking regulators are following the deregulatory blueprint that the treasury department, under secretary mnuchen's leadership, has mapped out point by point and rolling back many of the critical reforms democrats made to prevent another financial crisis. if these rollbacks continue, there will be grave consequences for financial stability in our economy. the 2008 financial crisis was devastating for our nation. 11 million americans lost their homes. 13 trillion in wealth was lost, and nearly 9 million americans lost their jobs.

as chairwoman of this committee, i am committed to doing everything that i can to ensure that we do not repeat the mistakes of the past, as i have now seen twice how the road of deregulation leads to financial crisis. the focus of this hearing is the financial stability, oversight council or fsoc. we created fsoc as part of the dodd/frank wall street reform and consumer protection act to eliminate regulatory gaps and to ensure the government could identify and mitigate risks to our economy. after the financial crisis, fsoc designated several large nonbank financial companies for enhanced oversight, including aig, the well-known poster child for the financial crisis. under the trump administration, however, fsoc ceased supervision

of all of these nonbanks and advanced an activities-based approach that amounts to more deregulation, willfully ignoring how catastrophic the failure of a large financial institution would be for the financial system and economy. the trump administration also cut fsoc's budget and reduced its staff by half. it has also reduced the budget and staff of the office of financial research, that is ofr, which collects data and conducts research and analysis to aid fsoc in its important work. along the way, the trump administration has fleeced the american taxpayers with their tax scam, which contained more big giveaways to the nation's largest bank. all of these steps put wall street's bottom line first and main street back at risk. make no mistake, the risks are

growing. climate change, cybersecurity, leverage lending, hedge funds and the rapid emergence of the big tech in the financial system, led by facebook, are all concerns that must be taken seriously. today secretary mnuchen will also once again be asked to explain the horrible actions of the trump administration to the american public. with that i now recognize the ranking member of the committee, the gentleman from north carolina, mr. mchenry, for four minutes for an opening statement. >> well, thank you, madam chair. secretary mnuchen, thank you for being here in your capacity as chair of the financial stability oversight council. i appreciate the work you are doing in leading the financial stability oversight council. i do also think that the timing of this hearing would have been more favorable if members had been given more time to read your report that was released

yesterday, but that's a timing issue here that we have to contend with. so my colleagues on both sides of the aisle haven't had ample time to review the important work that the council has in this report. so i think instead of just -- the political debate about regulatory changes that the administration has done, i think in oversight of the financial stability oversight council is really important. the issue of stability, financial stability and security are really important. yesterday prudential regulators testified before this committee on similar issues. during that hearing i stated my concern with the transition from the reliance on libor or the london inner bank over offering rate or to the secured overnight financial rate. i think the issues we have and concerns that we have there are

about financial stability and it is also magnified by recent fed actions in the repo market and that we could see more of at the end of the year. i also encouraged vice chairman quarrels to continue his review of the regulatory regime to ensure safety and sound lift and promoting economic growth are prioritized in their measures. i would like to hear your thoughts on the repo market as well. i think it is very important for us to hear from you on that. but back to this question about libor to sofo. libor's underlying bank reference rate for about $200 trillion in financial contracts worldwide and set to be phased out as the reference rate by 2021 and replaced with sofor. i'm concerned about the subsequent liability in mortgages, auto loans and other

consumer loans as a new reference rate is derived from secured overnight financing. additionally, transferring libor-based legacy contracts to sofor will undoubtedly require financial institutions to renegotiate with customers. this is also an issue of financial stability and economic growth. finally, secretary mnuchen, i wrote to you last month regarding an issue that i believe is an alarming issue of potentially enormous consequence. that's the financial transaction tax. this is not a honey pot of money that just comes from heaven. this will be a tax based off buying or selling stocks, bonds or other financial instructions that many are talking about as a new way to derive revenue nor the federal government. the rhetoric is that it will hit only the wealthiest. the reality is that average everyday investors, especially mutual fund investors and those

that are saving for retirement, will be severely impacted by this nefarious tax. in fact, one study indicates a typical mutual fund investor will have to save an additional $600 per year or work an additional two years to achieve the same retirement goals. i would like to hear from the financial stability -- financial stability oversight council and from ofr on this matter. i think it is important that our government have an analysis of what this would do to our markets and our investors. i look forward to your testimony. thank you for being here before the committee. >> i now recognize the chair of the subcommittee on consumer protection and financial institutions, mr. meeks, for one minute. >> thank you, chairwoman waters. mr. secretary, welcome. i will repeat to you what i stated to governor brain ard and ofr director when they testified at a hearing i chaired in september on financial stability. i was serving on this committee at the depths of the financial

crisis, and i never, ever want to be put in a position again where the treasury secretary comes to the floor of the house and tells us literally we have days to save the u.s. economy from total collapse. i never again want to engage with constituents who are losing their homes and their life savings through no fault of their own, but because the regulators and the administration had completely lost track of systemic risks in the economy. mapping, quantifying, containing and building contingency plans for systemic risk is not and should not be a partisan issue and should not be a means for scoring political points. this matters to every american family that is saving retirement to put a child through school, and i hope that we can do this in an intellectually honest manner devoid of political or partisan influence. i yield back. >> thank you. i recognize the subcommittee ranki

ranking for one minute. >> thank you. i appreciate you being here to testify today. yesterday we had the prudential regulators before the committee discussing a myriad of issues to the community reinvestment act to future pending regulations, the financial services industryst facing a variety of issues as you well know. as you are the head of fsoc which serves as the body of regulators that come together to discuss the overall financial stability, i look forward to how they're addressing that today. major concerns include cybersecurity, retail market and libor. all of these things will have a significant effect on consumers and the economy and deserve the full attention of fsoc. i yield back the balance of my time. >> thank you. at this time i want to welcome to the committee our witness, steven t. mnuchen, secretary of the treasury. he has served in his current

position since 2017. mr. mnuchen has testified before the committee on previous occasions and i believe he does not need any further introduction. without objection, your written testimony will be made part of the record. second mnuchen, you are now recognized for five minutes to present your oral testimony. >> thank you very much. chairwoman waters, ranking member mchenry and members of the committee, thank you for inviting me today to discuss the financial stability oversight council's 2019 annual report and other priorities of the treasury department. the report is the product of extensive collaboration among council members, and i appreciate the hard work by the staffs of the treasury department and other member agencies. the report provides congress and the public with the council's analysis of financial and regulatory trends and i.t. assessment of the potential risk

to u.s. financial stability. it also provides recommendations to enhance the integrity, efficiency, competitiveness and stability of the u.s. financial markets. since the publication of the council's last annual report in december 2018, the u.s. economy has continued to perform extremely well. economic growth in the united states far kpieds our -- partne. at orner lev near level lows fo african-americans and women. wages are rising faster for hard-working families. corporate and consumer delinquency and default rates are low and financial conditions remain stable. this year's annual report discusses a number of risks we continue to monitor but i want to high lie cybersecurity as one of the most important issues for the council, regulators and the private sector. financial firms heavily rely on

information technology which creates great efficiencies for consumers and business but also increases the risk a serious cybersecurity incident could negatively affect the economy and potentially have implication nor u.s. financial stability. we make specific recommendations in the report on this important topic. among other things, government and industry should work together to constantly update and share best practices to ensure that we are treating cybersecurity as a vital national and economic security priority. the report also provides a strong message to market participants about the need to prepare for a transition away from libor as a reference rate. failure to prepare adequately could cause significant disruptions across financial markets and to borrowers given the widespread use of libor. we recommend that market participants formulate and execute transition plans and any

new instruments that reference libor should include fallback language to mitigate the risk if it becomes unavailable. we ask that they evaluate the effects of financial stability including digital assets and technologies. we will continue to use the council's working group on these issues to promote consistent regulatory approaches to identify and address potential risk while promoting american leadership in financial services innovation. turning to another of treasury's key priorities, we will continue to work with this committee on meaningful housing finance reform to foster competition for the benefit of consumers, protect taxpayers from future bailouts and facilitate a smooth transition for the government-sponsored enterprises out of conservatorship. i am proud of the work we have done with prumtesident trump's leadership to create a

resilient, thriving and prosperous economy. thank you and i look forward to answering your questions. >> thank you very much. i now recognize myself for five minutes for questions. secretary mnuchen, i want to go straight to a discussion about hedge fund. in november 2016 when the last public update on the hedge fund working group's progress was issued, fsoc outlined five data limitations that needed to be addressed to better understand the risk posed by hedge funds. at times in the lead-ups to past crises activities and losses in the hedge fund sector have proven significant leading indicators. for example, bears sterns' hedge funds with sub prime exposure collapsed in the summer of 2007, signaling the impending sub prime crisis.

when was the last time the hedge fund working group convened? why has the working group not met more frequently during your tenure as fsoc's chair? what is the status of the limitations identified in fsoc's last public -- does fsoc now have access to the data previously identified in 2016 so that it can assess whether hedge funds are a source of systemic risk to the economy? if not, why hasn't fsoc taken any steps to address this information gap over the past three years? this is very important. we have members of this committee who are trying to make some decisions about hedge funds. we have members of this committee who think there are some who are operating in good faith, but there are many who are not. we are worried about hedge funds that take over fire departments and hospitals and other city services.

we are worried about hedge funds that take over fire departments and the response time is slowed down. we are worried about hospitals closing down. so why don't you talk to us about what you know about what is happening about the working group that was supposed to convene and help us to deal with this issue. >> thank you very much. so let me first highlight on page 94 of the report, we specifically talk about hedge funds. so this is something that the staff is monitoring. since we've moved to an activities-based approach as opposed to an industry approach, we are monitoring all of the activities that hedge funds participate in as part of our risk management, and one of the areas in particular we focused on that i know the committee has highlighted is leveraged lending.

i also would say fortunately the hedge fund industry has deleveraged significantly, but i appreciate your concerns and we will continue to monitor carefully all of the activities of hedge funds. >> distinction for us between the hedge funds and the private equity funds, are they involved in the same kinds of operations and acquisitions? >> normally they're not, madam chair, and we do specifically also on page 94 break out private equity funds. the difference is that mostly -- and, again, i will give you the majority of the hedge funds are in liquid markets and the majority of private equity funds are buying companies or ill-liquid assets. because of that typically the private equity funds are structured as very long-term funds and the hedge fund are subject to liquidity. >> thank you for that clarification. when was the last time the hedge fund working group convened?

>> i can check on that and get back to you, but as i suggested we have focused on activities. so the activities are being monitored as opposed to specifically the hedge fund working group. but we'll get back to you on that. >> do you know the status of the limitations identified in fsoc's last public update? >> yes. again, as i have suggested, we specifically comment on hedge funds and private equity funds in the report, and it is something that the council is focused on. >> does fsoc now have access to the data previously identified in 2016 so that it can assess whether hedge funds are a source of systemic risk to the economy? >> some of that data we do have access to and some of the data we have determined is no longer relevant. >> i yield back the balance of my time. the gentleman from north carolina, ranking member mr.

mchenry, is recognized for five minutes. >> so, secretary mnuchen, as you well know and as your report, as the fsoc report here notes, in the past few months we have seen significant volatility in the repo markets. i know there's speculation about what sort of combination of things occurred that created this volatility. there's speculation there's a combination of regulatory effects impacting monetary policy and that there are regulatory and supervisory actions that are unduly disincentivizing. banks are required to hold cash and hold cash at the fed. from using cash reserves when the repo market, when the market needs it, and needs liquidity the most. so the office of financial research is starting to collect data on repo transactions as

that's a positive, and the council directed agencies to juntds take a focused review. so as the chair of fsoc do you believe the spike in repo rates signals a need to examine overarching regulatory regime for potential risks to financial stability? >> so let me first say we share your concern about those two days when there was a significant spike. as recent as yesterday we had the federal reserve bank of new york, which is responsible for market operations, give a presentation to fsoc. i have met with chairman powell multiple times. we have talked about this as recent as this morning. we have discussed in our weekly meeting making sure that the fed is prepared for year-end activities so that there are ample reserves. i think it was a result of many different issues that came together in one day. one of them being, as you outlined, certain regulatory

issues. banks are required to have excess overdrafts for intraday. so this not normal liquidity but intraday liquidity. there's also the impact that the federal reserve holds the treasury cash account. we had a large payment of taxes so effectively you had money going out of banks into the treasury account which drained reserves. but i can assure you this is something fsoc is focused on and something in my role as secretary, chair powell and i are working together on. >> okay. so along those lines, the impact of regulation can impact monetary policy, and in this circumstance when you have federal regulation demanding banks hold assets and then they believe that they should not use those because of regulation, that becomes problematic. i think a systemic review of this to ensure that that

intraday activity can be dealt with adequately i think is really important. the "wall street journal" highlighted the question of tax payments, that there was a deadline in the timing of tax payments had an implication for the market as you just mentioned. on a going-forward basis, is treasury reviewing some of the timing issues? >> we are, and we're working very closely with the federal reserve, as i said, to make sure that there are ample reserves both associated with the treasury cash accounts, and we are working with the bank regulators on what could have been regulatory issues that caused that spite during the day without creating anything that provides longer financial risks. >> thank you. and in 2018 and again in yesterday's report, fsoc outlined and highlighted that ending libor's reference rate is a concern to financial stability

and recommends that member agencies work closely with market participants to identify and mitigate risks during the transition from libor to sofor. do you believe financial regulators are adequately prepared for this transition? >> well, i can assure you that this is something that we have very, very focussed on. it is a risk as you have highlighted, we outlined. yesterday as an example, chair powell, myself, and other membe members met with ten member banks to talk about the transition of libor and the transition. we are working closely with sec because we are worried about securities and how it will transition with the role of trustees. we may need to come back to congress to suggest regulatory language and law to deal with this, but i assure you that it is one of the top risks we are

focused on. >> thank you. thank you on your response on my request for the financial transition tax as well. we will follow up. >> thank you. the gentleman woman from new york, mrs. maloney, is recognized for five minutes. >> oh. okay. >> i believe your statement is accurate for at least a week. >> why did you give me this? >> nice, nice. >> madam chair, do you have an announcement? >> thank you so much. thank you so much for your leadership, madam chair. i want to thank the secretary for your continued leadership and support for the corporate transparency act, the beneficial ownership act that recently passed out of this committee with strong bipartisan support. it would not have happened

without your support. i wanted to thank you. law enforcement in my home state in new york and across the country considers this bill to be their top priority to combat terrorism financing and to make us safer. so i want to thank you. i do not think it would have passed without your support. i'm very grateful. my first question concerns the federal reserve which recently warned about the ballooning corporate debt, which sits at nearly 10 trillion. that's about half the size of our overall economy. there is a particular focus on the growth of the near-junk bbb, bbb bonds and the continued rise of leverage lending. personally, i am very concerned a lot of the debt is being used for financial risk taking and stock bye backuy backs. i'm troubled to see in the clo there's been a wave of downgrades and there's a question as to whether there's

enough data on the clo market. i have two basic questions. first, does fsoc have a grasp on the global leveraged loan market? specifically, who actually holds most of the outstanding clos? secondly, other than monitoring, what is fsoc doing to keep the surge of risky corporate debt in check? thank you. >> first of all, thank you for your work on beneficial ownership and your acknowledgement of our contribution. we are currently working with the senate and we look forward to bipartisan support turning this look law. >> thank you. >> specifically as it relates to your issue, let me just first say that the leverage lending market is something that fsoc is very focused on. we've had several presentations at fsoc. we have a group within fsoc of all of the different regulators looking at this. it is one of the things as part

of an activities's based approach that we are non-toring the risk. the first issue we examined is what is the exposure in occ and fdic banks. i'm pleased to report a lot of the leverage lending has moved out of the bank market to the clo market, as you have commented. the clo market does have long-term capital associated with it. it is something that we're carefully monitoring. i would also comment that you're right, there has been a very large issuance of bbb bonds. i don't think it has been used for stock buy backs. most of the stock buybacks have been done out of cash and not additional leverage but we are monitoring the bbb market carely. >> thank you. i want to make sure you use every tool available to understand their connectedness to the overall economy. you recently talked about libor and sofor in our hearing today. do you think that the recent

issues in the repo market indicate that sofor might be more volatile than anticipated? we've seen a lot of turbulence that's raised some questions about it. >> no, i'm not concerned -- i mean i am concerned about the transition from libor to sofor, and that's something that we are very focused on because it is a regulatory issue, a technology issue, a legal issue. as it relates to sofor and the involved of those two days, off a long period of time it would not have a big impact on sof. the thing we like about sofor is that it is a market that can't be manipulated, it is highly liquid and it is demonstrated and calculated unlike the libor markets. >> that sounds like it is a good move. i look forward to working with you to pass the beneficial ownership bill. thank you.

i yield back. >> the gentle woman from missouri, ms. wagner, is recognized for five minutes. >> thank you, madam chairman and secretary mnuchen, thank you for testifying before our committee today. we have seen proposals to implement a financial transaction tax in both the house and the senate. in addition, a number of democrat presidential candidates have either endorsed or are considering a financial transaction tax. these proposals would place taxes on financial transactions typically involving stocks and bonds and derivatives. this trade will leave market participants to look -- this tax will leave market participants to look for other ways to avoid the tax. it will reduce capital gain taxes and may lead to other forms of tax evasion. additionally, a financial transaction tax has already been

tried internationally and the results were very poor. in italy, the tax just raised 159 million euros of a target 1 billion euros in its very first year. in sweden a tax was imposed in the 1980s and by 1990 more than 50% of all swedish trading had move offshore to london. while proponents of the tax argue it would only affect the wealthy, that is simply not the case. this tax would impact all investors, most specifically and including millions of main street investigators saving and investing in mutual funds, a retirement account, a child's education or maybe a pension plan. secretary mnuchen, what sort of impact could imposing a financial transaction tax have on the u.s. financial system? >>

>> thank you for racing that issue. i share your concern about the potential. is the leader in financial services, in capital markets, and it is something that people come from all over the world to raise capital in the united states. i am very concerned it would destroy our capital markets, and the cost to american holders of mutual funds would bear the majority of the cost. we have committed to do some work internally to see if we can try to come up with some research on what the impact would be. >> you believe it would reduce liquidity? >> i believe, as i said, it would be detrimental on many aspects, including liquidity.

>> market volatility? >> i think we may have less market volatility because we won't have a market here, because as you mentioned it will go to london, hong kong and other places where we clearly don't want it to be right now. >> how would it impact overall u.s. economic growth, secretary? >> it would be a burden on economic growth and, more importantly, it would be a burden on all of the american taxpayers who already pay taxes and hold mutual funds and have their savings and their retirement in mutual funds. >> of which there are millions, as i said, of main street, hard-working americans in my own second district of missouri that would be impacted by this. could it result in fewer trades and lead market participants to look for other ways to avoid the tax, the kind of tax evasion we have seen internationally in other countries? >> i believe it would. it would move money offshore. it would disproportionately hurt pensions, 401(k)s and people

saving for retirement. >> do you believe, sir, that the cost to the treasury of issuing federal debt could increase because of the potential increase in trading cost and the reduction in liquidity that would occur if this tax were, in fact, imposed? well, if the tax were put on u.s. government securities, it would clearly just raise the cost of the government borrowing. there's no question. >> so federal debt would even be affected by this? >> it would. >> all right. thank you. i look forward to your study and we do hope that fsoc will do more market research so we can be very clear before moving forward with a horribly regressive and detrimental financial tax like this. thank you so much for your time. i yield back, madam chair. >> thank you. the gentleman from california, mr. sherman, who is poised to become the next chair.

of the subcommittee on capital markets. is recognized for five minutes. >> i thank the chair. the gentle woman from missouri brings out a number of concerns about a financial transactions tax. there are pros and cons of that tax but i made a list of all of the problems she had with the financial services tax, and every single one of them would be avoided with a wealth tax. so i will put you in touch with the academics on our side that are helping elizabeth warren produce -- >> if the gentleman will yield, i can't wait for that debate. >> i will not yield because i think i know where you stand on this. a lot of questions divide us ideologically, and then there are the simple ones we can do something important for the economy and we just put it off and put it off, and we ignore the fact that even if we get it done by the very last minute we have caused a harm to the

market. you know, a trillion here, a trillion there, it adds up to real money. we have libor instruments out there relying on the libor index to the tune of roughly $10 trillion. the libor rate may well not be published after 2021. mr. secretary, you said in your opening statement we recommend that a new instruments that reference libor should include a fall -- should include fallback language to mitigate the risk in the event libor becomes unavailable. good. but that still leaves us with $2 trillion of the libor-based contracts that will still be outstanding at the end of 2021. they've already been written. they were these libor legacy instruments. we can't amend these instruments

without the consent of every participant. that's impossible. i'm working on legislation that would solve this problem and link these libor denominated instruments to the secured overnight financing rate, sofr. but it akeeoccurs to me you mig tell me we don't need regulation. does treasury have the authority to issue regulation or does any executive branch agency have the authority to issue regulations to simply say if you have a libor contract and it doesn't provide for a backup rate here is how to do the calculations? you don't have the authority, do you want the authority? >> first of all, again, let me acknowledge i agree it is a bipartisan issue. this is nothing -- this is something that we should work on, and the work on this predated me coming to treasury. so this has been a long time.

as i mentioned earlier, we may come back to congress and suggest that you pass legislation -- >> i would ask you -- >> -- to do this. >> this is not on your 2021 calendar. this should be on your december calendar, your january calendar. >> i agree with you. >> i look forward to working with you. i need to know whether you need legislation. i need to know what you need, and we need to make sure that there aren't $2 billion of debt instruments outstanding where people cannot determine what interest is supposed to be paid. we focused on china. china could end up with a billion and a half of world bank loans. this is under discussion now.

china's income has already exceeded the level where they should be eligible for these loans. the chinese government has enough money to put a million uyghurs behind bars and to build a military complex that destabilizes the world, so it seems like maybe china should only be able to borrow money in the private markets at private market rates. now, i know the united states won't support world bank loans to china, but i'm asking what are you doing to stop those loans? are we simply making academic arguments or are we making it clear that our future involvement in certain world bank activities is dependent upon not giving concessionary loans to china? >> so, again, thank you for raising this issue, which i also think is a bipartisan consensus on. so david malpouse, now the world bank president, when he was working for me as under

secretary, we negotiated with the world bank, with the prior leadership there. we negotiated significant reductions in china lending with the path to get below a billion. they're below a billion this year. yesterday we submitted our objection to the current country plan, so we look forward to following up with you. >> the gentleman from florida, mr. posey, is recognized for five minutes. >> thank you, madam chair and ranking member, for holding this hear on systemic stability. for many of us who grew up after the great depression, the first experience we had with severe systemic instability was the last financial crisis. at this time we often watched a classic movie, "it's a wonderful life," where we experienced a drama of a run on the banks with george bailey, the hero of the movie, played by jimmy stewart, who saved a small town savings and loan from a bank run.

the last crisis taught us we no longer live in the world of jimmy stewart banks. it runs on other system liabilities like money market funds may often threaten far greater consequences today than bank runs. markets may meet the survival constraints imposed by liquidity and solvency. we often hear the words you can't be too careful but the reality is in regulating the financial system we can be so careful we stifle the innovation, restrict credit and finance, slow economic growth and inhibit jobs for people. >> mr. secretary, please let me commend you for your leadership

in working with other key regulators to finalize reforms related to proprietary trading provisions of the vokler rule. thank you. as you know our banking history was different from banks where they focused on trade capital and played a limited role in long-term capital markets. in this country banks always had a role in capital markets and the investments that made our economy a mighty engine of growth. the intercontinental railroad, shipping and a host of other industries. i believe banks have a key role to play in venture capital and the rule is for restricting that function. i joined other members of the committee in sending a letter to you and other key regulators asking that you move quickly to amend the covered fund provisions of the rule. specifically we asked you to revise the overly broad recognition of a, quote, covered fund to exclude venture capital and other long-term funds.

so my first question for you today, mr. secretary, is the statute makes you as chair of fsoc responsible for coordinating rule making. are the financial regulators and the department of treasury working on changes to the covered funds provision? and if so, could you please provide us with an insight on the timing for such a proposal? >> thank you. so first let me just acknowledge what you said, that the healthy banking system is critical to our economy and our banks have derisked and built up significant amounts of capital. so the regulators have already made some proposed changes to the volker rule that won't create undue risk but will create more liquidity in certain markets and we are working with them as you suggested on the covered -- the covered fund issue as well. thank you. >> any idea what the timeline would be on that?

>> i would hope it is over the next 90 to 120 days, but we'll get back to you. >> do you expect much criticism in that regard? >> i'm not going to speculate, but any proposed rule making will be open to public comment and we'll take those comments into consideration. >> i wanted to talk about some of the climate change regulations, but i only have a minute left. just wonder if you can give me your assessment on the usefulness of taking the short-term stress testing discipline into much longer period realm of climate change. does that make any sense to you? >> it does not. i'm sorry. could you repeat your question. i want to make sure i heard it correctly. i said it does not but i want to make sure. >> i wonder what your assessment is on the usefulness of taking the short-term stress testing discipline into the longer term realm of the climate change requirements. >> well, let me just say in my vast expertise on a lot of

different things, climate is not one of it. buff i thi but i think the banks have a difficult enough time on modelling different risks. i think long-term climate risk is something that's subject to a lot of different different view. and as long as there's proper disclosures, i think that's adequate. >> i thank you and my time has expired. >> yield back. >> thank you. the gentleman from new york, mr. meeks. also the chair for the subcommittee on consumer protections and financial institutions is recognized for five minutes. >> thank you. mr. secretary, i think that we can agree, as i said in my opening statement, i'm really concerned. it was one of the most things that shocked me as a member of congress is when secretary paulson came on the floor talking about that our whole economy was going to drop. and so with fsot, we try to look forward to try to figure out

what's going on and what will happen in the future. i have some real concerns because as i look as the chinese growth, as i look at the european economies are slowing with some entering recession, i look at brexit looming and what effects that brexit may have, and then all of the turmoil that is going on in latin american, you know, it gives me real concerns. and when i look at some of the forecasts in america, the u.s. economy is slowing also. history may not repeat itself but sometimes is certainly rhymes. and i fear that over the next few years for the economy, it may rhyme a little too much for me with the past decade. and so i'm hoping that the administration is going to look well ahead of what takes place and have certain formulas that they put in place in case there

is a tremendous problem, like when i look at the debt stock of corporations and even colleges and universities has ballooned, and an important share of this debt is in the form of leveraged loans. and covenant light loans. and there seems to be a real risk of a downgrade cliff. and as a growing share of this debt is just barely above junk. so i'm hoping, do you have some models to show what would happen to employment, home ownership and the broader economy if these loans were downgraded en masse in the event of a down turn in the economy? and how would it affect the retail sector, for instance? any model that you have? can you tell us? because i'm really concerned about these leveraged loans out there? >> first let me say we share your concerns on financial stability. i worked for secretary paulson for a long time and speak to him

regularly. a i hope we're never in that type of a time period again. specifically as it relates to leverage lending and confident light we do share your concerns. we are moderating those risks. we've studies it very carefully as it relates to the banks. and again we're very comfortable that there's very limited exposure in the banks. as it relates to specifics of the impact on employment and retail sales and other areas, we'll get back to you on our thoughts own that. but again my view that it is minimal because the exposure is outside of the banking industry and shouldn't have the type of con taijon and risk that occurred during the financial crisis. >> thank you for that. and do get concerned sometimes too because now that it is outside of the financial banking system, we try to put certain things in place for the banking system so that we can make sure

we see the risk before and downsize and do what's necessary. outside i want to make sure we're watching what's happening on the outside because i don't want that to catch us by surprise. >> i agree. i assure you we are. >> also, you know, when i looked at what devastated me and in this financial crisis, it's a reminder that recessions and crises don't hit all sectors of the and demographics of the economy equally. if you look at my district and minority communities, they overwhelmingly lost wealth, jobs, were foreclosed upon at disproportionately high rates and many haven't even recovered yet. in fact two point -- minority banks failed at 2.5 times the rates of nonminority banks, and they have also yet to recover. i was wondering if it considers

the risks of financial disruptions, how much consideration is given to the manner in which the burden falls on low income and minority segments of the economy and how do you quantify this and what has it done to address this? anything to in 23 seconds to address this if you would do it. >> two comments and we're happy to follow up with you another time. one, housing reform is something beer very focused on, particularly because of the disproportionate impact on certain communities. and also on minority-owned banks, we have a program, a treasury where we have a mentorship program that we're working with those. i look forward to following up with you. >> the gentleman from missouri, mr. luca more, is recognized for five minutes. >> thank you, madam chair. first of all i'd like to thank the secretary for responding to a letter that i and 20 of my colleagues sent to you recently regarding cecil.

fsoc's meeting yesterday i can see you examined all research on the matter and report back. i think this will enable light to be shed on the stachbd aud which i believe is debt aimtal to our industry as well as our consumers and economy. looking forward to following up, make sure the process is connected correctly and look forward to working with you to other work on issues that i think are going to be pointed out. thank you for doing that and responding to our request. first issue i want to talk about is with regards to the new digital currency libra that's being proposed by facebook. pll zuckerberg in here recently and he explained his intentions and how this is all going to take place. you know, since then, china has got -- made announcement with regards to their own digital currency and there's been falls for the fed to issue its own digital currency. i'd like for you to give us your

position on it, where you see it going, what your thoughts are on it, because it does seem to have some legs? >> sure. let me comment that when people talk about digital currencies, it's a large vastly different area and different sectors have different things. specifically as it relates to libra we've had a dozen meetings with facebook, shared our concerns. it's part of the reason why they're slowing down their movement forward. we've discussed this at the g-7 and g-20. i am fine if facebook wants to get into digital payments, that's fine. that may be good for their customer base and good for a lot of americans who don't have access to banks. we taunt to make sure if they do it they're compliant with the bsa-aml and no way can be used for terrorist financialing in illicit activities. >> the chinese have been getting into this as well. the last half of my question was, there's been some thought process about the fed getting into it.

is this something you see necessary? something you don't want to get into? something that shouldn't be out there? where do you see this going? >> again, i would differentiate what china is doing from what a bitcoin or a facebook would do. what china is doing is issuing digital currency in lieu of physical cash. they can track all that. they will be able to track where that goes. that's different from a bitcoin. it's no different in the u.s. if money is sent on the wire system, can be tracked. money through swift has i'd fires. i would differentiate what central banks are doing from what a libra or bitcoin. as it relates to the fed, chair powell and i have discussed this, i think we both agree for the near future in the next five years we see no need to issue digital currency. again, we have a very sophisticated system.

the fed is working on electronic payment system. we need to make sure they're realtime electronic payment system in the u.s. but thank you for your concerns. >> okay. appreciate the response. yesterday we had a hearing in the committee and there were a number of questions with regards to credit unions buying out banks. it seems that this is a little bit of a trend here in the last 12 to 14 months. in fact the comment was made yesterday i think there was 28 that had already been purchased this year with another 14 more in the hopper, i understand. as i rest this in your purview, mr. secretary, this means that those twooegt 28 banks plus perhaps this other 14 are going to come off the rolls as taxpayers. it's going to dent the treasury some. not much. there doesn't seem to be any resistance from the dfic or credit regulators to not allow this to happen. so it's continuing to be

approved, continuing to happen. you know, in fact i was having a discussion last night with somebody and they said maybe the banks need to start credit you knowions and avoid taxes. so i don't know if that's doable, but there are some people starting to think outside the box because they're looking at this as a tax loophole. from your standpoint do you see concerns? from the standpoint of credit unions buying out banks? is there just another part of the merger situation that's going on in this country? or is this a trend? is a tax evasion situation? how do you view this? >> well, we'll follow up with the fdic on this issue and monitor it. it's not something that's caught my attention because fortunately it's on still small scale. but i appreciate you raising the concern and we'll follow up. >> this past week there's announcement of a $700 million bank that was bought out by a $10 billion credit union. this is going to grow. thank you for your response. >> the gentleman from georgia,

mr. scott, is recognized for five minutes. >> secretary mnuchin, how are you? i want to make sure i'm clear on your level of concern about the continued volatility in the repo market and its impact on the calculation of sulfer. the secured overnight financing rate, which as you know is a designated replacement rate for lib bell. now i've listened to your response to mr. mchenry and also to the gentle lady from new york. and i want to be clear, because i read your report, the fsocs

2019 financial stability record. here's what you said. you said that market participants with significant exposure to libber remain vernable. if they do not sufficiently prepare all the way to the end of 2021. what did you mean for that? and what did you mean about prepare? what are you doing to help the industry participators prepare? >> well, again, let me just emphasize two different issues that are related in a way as you said. i am concerned what happened in the repo markets. that's not just a concern for sofer. that's a broader concern because we rely on these repo markets

and it impacts many, many individuals and institutions. so we've had active discussions with the fed on that issue. that does impact the libor transition. but the libor transition is a much broader problem and i said as recent as yesterday we con vooepd a group of the banks and regulators on this. >> so what did you mean by, they will remain vernable? >> well if banks and trusties and security holders don't prepare for the transition there are trillions of dollars that people could wake up in 2021 -- >> and by prepare, you mean to do what? >> it's a list of everything from prepare technology, so that they have the ability, prepare the legal analysis, prepare a transition. people literally have huns of thousands of transactions. part of this may be kong back to congress and asking you to pass

legislation. there may be serious legal issues that we're still exexploring. >> let me turn and lets go overseas for a moment. i'm very concerned about brexit and the particular impact that brexit will have on our businesses, on our financial markets, particularly because of the uncertainty we are seeing around the whole deal of delays after delays and the failure of them to come up with a clean deal. so what i want to get from you as a treasury secretary, how concerned are you about this situation with brexit and its impact, this uncertainty is having, on our cross border transactions with our financial market participants? >> well i would describe i'm moderately concerned. i've been discussing this issue for the past three years with my

counterparts at the bank of england as well as the regulators and the finance minister who's the extracker. it is a significant risk to the uk. it is a dish it could have carryon risk to the u.s. we're working with the regulators on those. we've managed through some of those. and some of those are still open. but as i've encouraged the uk, they need to resolve this one way or another. >> now, wilalso in your report concerning that, you said this. you said that -- and you highlight the potential for risk and that they will have significant spillover affects in the united states, should there be a no-deal brexit, particularly with regard to the cross-border translations. what did you mean by that? what would be the potential with no deal? what would be better for us or

worse, no deal or deal in your mind? >> let me say i respect the people of the uk. they can decide whether they want to be in brexit or don't want to be. the risk is making sure that whichever case, there's a coordinated transition. >> thank you, mr. secretary. >> the gentleman from oklahoma, mr. lucas, is recognized for five minutes. >> thank you, madam chair. and thank you, mr. secretary, for appearing before this committee one last time before year's end. secretary mnuchin, in the council's annual report it recommend that government and private sector should have more effective information sharing practices. could you expand on how agencies can best work with financial institutions to address cyber krurt concerns without inhishting the growth of emerging technologies? >> as i highlighted in my opening comments, cybersecurity is one of my most important priorities. while i think the industry is

well prepared, we can never be prepared enough. the bad people continue to operate. we need to make sure that our financial markets are not only protected for today but are pro erkt it'd for the tu fur, and it's a coordinated response between private companies, public companies, the intel community, as well as the treasury and the regulators. >> secretary, in what ways is fsoc and its members educating the general public on cybersecurity risk particularly as you noted those coming from bad actors and abroad too? >> our focus is less on ed kaigucating the general public and more making sure that the banks are educated. they have the best practices. the general public will be protected as long as the banks and the financial system is protected. that's what we work on every single day. >> one last question. and i'm thinking of my colleague discussing brexit for a moment.

you're in a unique position with your finger on the national economy. a business person of much experience. could you speak for a moment about the potentially how much better the u.s. mca deal is for american workers and why it's essential for the economy that we act swiftly on that in this body? >> i mean first of all let me say i hope that congress passes this between now and the end of the year. i know ambassador lighthizer the speaker and others are working closely on this. this will be a terrific win for american workers, for the american economy. our largest trading partners are mexico and canada. these economies are interlinked. this is a great step for growth. >> thank you, mr. secretary. and with that madam chair, i yield back. >> thank you very much. the gentleman from colorado, mr. pearl mudder is recognized

for five minutes. >> mr. secretary, good to see you. i'm over here. my questions are going to go back towards that repos and repurchases, because there are some flags here. and, you know, last year banks had the most profits they've had in forever. in part because of the big tax cuts and stuff like that. but huge profits. and at the same time, we saw the excess reserves of the banks decline by 35% since 2017, and at the same time as the fed and treasury were sort of shrinking the balance sheet, all of a sudden over the last few months have had expanded again. i don't understand how those all come together. and if you could try explaining it again, i'd appreciate it. because we got big profits,

shrinking reserves, and now expansion of the balance sheet again. that -- those are the kinds of things that i think we have fsoc in place to monitor. what is driving it on a bigger scale if you could tell us? >> i'm happy to address it again because it is a very important issue. i don't want to minimize it. again, as recently as yesterday at f sok, we had a presentation from the federal reserve bank of new york. i think there's a lot of different issues that came together on those two days that caused the spike. it was not any one single issue but we are studying it carefully to make sure that this doesn't occur again and to make sure it doesn't occur on a prolonged basis. the banks are having very good profits mainly because of the u.s. economy is performing very well. i don't think this has to do with an issue of bank profits.

this has to do with an issue of bank liquidity. they this plenty of liquidity. enough to go in and take up the repo, but they didn't want to do it. the reason they didn't want to do it had to do with different regulatory tests that fit together. so it wasn't the liquidity test was fine. it was different ratios that they were worried about hitting and tripping. so again, this was partially a treasury issue of tax day. it was partially a regulatory issue. it was partially a reserves issue. and then just to comment as you said, the fed has been shrinking the balance sheet, i with i think makes sense. because as they went out of quantitative easing they didn't need a giant. that was for the financial crisis. and what they're doing now doesn't impact the growth of the balance sheet by buying securities. it's really a cash management function around the repo markets.

but these are all very complicated issues that were intertwined and we continue to work with them. >> those were sort of the things that led up to the recession ten years ago. that wi that all of a sudden there was this illiquid setting of our banks. and then everybody started getting nervous and the rate securities went to heck and everything else started closing in. and i guess it just doesn't add up for me. we're making money over here. but we're shrinking. but all of a sudden the reserves are shrinking like crazy. we try to shrink the balance sheet. but now we're expanding it again. it it isn't just two days. it's been happening for several months now. >> i can assure you the necktical issues that happened around this have nothing to do with the financial crisis. it was driven primarily by real losses in real estate markets in

highly leveraged securities. this issue, this is all about the government repo market. and again, when we talk about the reserves at the bank, the exe reserves, most of those are loktd up with the fed because of regulations that require the banks to have so much excess liquidity. >> let me slow you down for a second. i asked my staff to give me some numbers on student loans, auto loans and corporate debt. we're at $1.6 trillion in student loans, 44 million americans have student loans, almost $30,000 the average debt. auto loans at 2.6 trillions. 7 million americans are more than three months behind. corporate debt at 10 trillion, $1.2 trillion in junk bonds. there's a lot of lending going

on. are we getting overextended again? that's what i'm worried about. >> the gentleman from colorado mr. tipton is recognized for five minutes. >> mr. secretary, did you want to answer that? >> thank you. i was just going to comment on is i think it's a good thing that we have a lot of lending, a healthy economy, and again, i really do think that this bank issue is a highly technical issue, but it is something we are very focused on, and student loans, that's a longer subject that we're studying carefully. we share certain concerns on the student loan market right now. >> thank you, appreciate you taking the time to be able to be here and speaking to that specific point. the ability to be able to have access to capital, get this economy moving. i think it's worthy of noting the first thousand days that you've been this office with president trump, you've been

able to implement historic tax reform, take extraordinary steps, to be able to safeguard national security, making strides to be being a better steward of taxpayer dollars. it's important to note that our free market system with the help of tax reform and other policies have come out of congress and the trump administration have helped to be able to stimulate my state's economy in colorado. in the past year alone, colorado employers have created 43800 jobs. nearly 60,000 coloradans have found jobs. my state the unemployment rate is at 2.6%. as you noted in your testimony, we are at a 50-year low on unemployment in this economy right now. we have policies that are actually making this capitalistic system work. main streets in rural america is a primary concern to me. that is my district. as you probably know, in many cases when we're looking at

economic recovery after down turns, it's rural america that is last to come out of that recovery. if another downturn comes they're the first to be able to lead the way in to distressed economies. i'm really pleased to be able to report to you in my district we're starting to see property move in some of these areas, economy moves, jobs being created. i appreciate the efforts that you and the administration have made to be able to address that. would you agree when we look at the overall economy, low unemployment, historic low unemployment in so many of the demographic groups that we have, the opportunity we're seeing in this country, is this a good positive sign for my state of colorado and for america as a whole? >> it is indeed and it's the bright spot of global growth. >> and i think that's something that's going to be important for us as a congress, as a nation. to be able to keep our eyes on.

you know, despite some of this historic growth we have some of our colleagues across the capital, governors mansions across the country that are trying to upend our capitalistic system that has ben fitted the majority of americans in this country. the economic engine in this country is to be celebrated. we should not be pursuing socialistic policies to be able to redistribute income and slow that down but rather policies to be making sure every american has that opportunity to be able to reach their highest and best potential as god has given them the ability to be able to do. i'd like to be able to encourage you and the administration to be able to continue those policies that are creating opportunity for so many americans, to be able to reject those who are going to be seeking to redistribute income, outbid government to more programs,

empowering people with their own resources, build for bigger, brighter future. appreciate you taking the time to be here today and for your work on this economy. want to wish you and your family the best for the holidays. >> thank you. >> i yield back. >> back. gentleman from colorado yields back. the jachlt from connecticut mr. himes is recognized for five minutes. >> thank you for being here. i'd love to use my five minutes to have you reflect a little bit on shadow banking and in particular the intersection of shadow banking and the mortgage system. i'm of a tenure, i was sworn in in january of '09 when this committee wasn't sure that citi bank would remain solid until a couple of quarters had gone by. of course so much of that was due to irresponsible underwriting in the mortgage

market. in your report which i have not had a ton of time to absorb, you make specific mention and in fact box b, nonbank mortgage origination servicing here, the message is clear, nonbanks are now originating more or less than half of mortgages and those are disproer potionatly going into the gses. that makes me nervous because the gses are guaranteed by the united states, the american taxpayer. this feels to me like a little bit of a replay in which institutions that maybe don't have the underwriting discipline of banks are out there writing a lot of mortgages, sure that those more ganchz will be securitized. i have a general question and then specific. my general question is what sort of visibility do you think you and the other regulators have? and to the quality of the overall underwriting and

specifically we spend a lot of time in this committee and trying to reflect in dodd-frank the nation of retention, meaning you actually eat your own cooking with respect to the underwriting. i have a suspicion that a lot of these nonbanks are actually not retaining exposure but in fact transferring it to the gses. generally what kind of visibility do you have? and more specifically, are these nonbanks underwriting come pe terntly? >> let me say we do have concerns and that's why we've highlighted it. the good news is we do have visibility. and the main reason we have visibility as you pointed out, a lot of these loans are being sold to the gses. a lot of these are being guaranteed by fha. so one of the things we want to do as part of housing reform is we are concerned both at fha and at the gses that the underwriting criteria is

deteriorating and the loan to values are increasing. we are working with the fmsa and hud on those issues. the other area of concern that we have is that the mortgage servicing business which used to be dominated by banks is now dominated by nonbanks. and one of the problems is the nonbanks don't have the liquidity to advance on mortgages that the banks had. so this is something that fsoc is very carefully studying. i can tell you my role as being on the fhsa board, we're also studying this as well. i would say it's not at the point where we're nervous of the levels that it was ten years ago, but it is a significant concern and that's why we're carefully following it. we'll come back with additional recommendations. i think there's a lot hud can do and fhsa can do to cut down these risks. >> you've got a sentence that says that loans originated by

nonbank lenders have on average marginally rash oeds, so it fields to me i haven't had a chance to study, but it feels to me like there's a little bit of an adverse selection going on here inasmuch as lower credit morb ganchz are being guaranteed by the gses but the hire quality mortgages are staying outside of the structure. am i right in inferring that from the report? >> not necessarily. but what is occurring, because a lot of the loans that the banks are originating are being sold to the gses. but if you look at the loans that the banks are originating, they're better equaled. if you look at what the gess are buying, the higher level are from banks. the good news is the bank regulators made sure that banks weren't originating bad loans and just selling them. that goes back to your original comments. by the way, these should be

bipartisan concerns. these should concern all of us. >> i completely agree and i'm glad to see this focus. i would emphasize again just drawing on what it felt like. my own state of connecticut has only now recovered. i appreciate you highlighting this. i hope if you need us to help with either gse reform or whatever, we will be involved rather than surprised. >> we do need your help on gse reform. we look forward to working with you. >> gentleman from connecticut yields back. texas is recognized. >> thank you. good to have you here, mr. secretary. full disclosure again, car dealer, retailer, main street and texas. and i want to thank you for taking time out of your busy schedule to come up here to answer these questions. by my count, this is the fourth time that you have appeared before this committee. and i know i've asked you this question before.

but this is politics. and things up here in washington seem to change hour by hour, minute by minute. before i continue my questions i must ask you, are you a capitalist or socialist? >> i'm pleased to report i'm still a capitalist. >> pleased to hear that. i'm worried we are not paying enough attention to the national debt which recently surpassed $23 trillion. the net interest is estimated to reach around $400 billion this year and could account for over 10% of the gdp by 20. jerome powell stated our debt is on an unsustainable path that will cripple our ability to respond to a recession. in addition to his comments i've heard from former military officers including some who served at ft. hood that our debt is one of the national security threats they say. the fact is we need to cut

government spending and get serious operating within our means. mr. secretary, can you elaborate on the threat that our mounting national debt has on financial stability? >> well i would say that today, it doesn't have much of a threat because we are the reserve currency of the world. and i think relative to this side of the gdp it's sustainable. i would say we need to grow our revenues faster than we grow our expenses. as you know when the president came in he presented a balanced budget. he wanted to increase military spending and decrease nonmilitary to pay for it. to get a bipartisan deal done we increased both. i was part of what praerk pelosi just noeshgating the recent deal. over time we need to look at government spending. >> it's no secret economic growth has been slowing throughout the world. the international monetary fund refused its global growth estimates down to 3% for 2019

when just two years ago it was growing at a rate of 3.8%. even as the global growth slows, the united states continues to outperform other developed economies as you talked about today. i can tell you again being in the retail business, on main street america, business is as good as i've ever seen. i appreciate it. what factors are contributing to our growth outpacing our european counterparts? >> there's no question it's the economic -- trump administration. tax cuts, better trade deals, that's what we're focused on. >> unemployment, 3.6%. this number could call to as low as 3.25 by the end of 2020. what concrete actions would you recommend we take? >> i would suggest you continue

on bipartisan sport of usmca. that's the most important thing on the economic side that congress can do between now and the end of the year. >> totally agree with you. data security is one of the greatest threats. inaction, many states have adopted their own standards. for many businesses in my district they are going to be forced to comply with various standards in order to operate their businesses in all 50 states. i know you've addressed this before, but is it as important for the businesses in my district that we talk about this, what would be the value of having a single federal data security standard? >> i think it's something we should very carefully look at. just as there are national banking standards, i think data is something that's very critical and also, by the way, this is an issue on a global basis. we want to make sure that localization doesn't stymie growth and transactions.

>> before i close, thanks for being here. i want to applaud the treasury department's work in standing up for european regulators over insurance capital standards. we cannot allow bureaucrats in brussels to write unworkable rules and regulations that would hurt insurance companies in our country. keep up the good work. i yield back the balance of my time. >> gentleman from texas yields back. the gentleman from illinois, mr. foster, is recognized for five minutes. >> thank you, mr. chairman, and thank you, secretary mnuchin. there are so many new emerging threats from cryptocurrency projects such as libra to looming levels of corporate debt, leveraged lending, questions about accuracy of the ratings from bond rating agencies, in addition to climate-related risks, the concentration cloud service providers, a very long list. that's why i'm concerned that the budget and levels for fsoc

and financial research have been greatly reduced under your watch. compared to the bujtsz, the fy 2020 budget would result in about half the staff forever fsoc and the ofr. secretary mnuchin, do you really think that it was a wise idea to cut the fsoc and ofr staff levels in half? >> i do. and the reason for that is because one, you've been successfully increasing our treasury staff outside of fsoc as well as the other regulators. we rely one of the things that fsoc does, i think it can have a smaller group of core people. most of the work is done on a coordinated basis through all of the agencies. that's really why we're comfortable doing that. we're trying to be prudent on engs pences. >> it seems very shortsighted to me to cut the resources needed

to make sure that we even reduce the risk of the sort of financial crisis that we lived through. you're unwilling to commit to doing anything to restore those budgets? >> i'd never say i'm unwilling to commit. we're happy to come up and explain our thinking. we're trying to save taxpayer dollars, not doing anything to create more financial instability. if we thought we needed those resources, we'd keep them. >> i believe we need to give fsoc and the ofr funding to carry out their very important missions. that's why i've -- i'm hoping we're going to be marking up in committee. this is a common sense measure that tries to restore the minimum funding levels we had in 2017. it's pretty simple because we cannot foresee and prevent the next crisis if we do not have the personnel around to actually do the work, inclusion the

coordination of checking the data, analyzing the risks and performing the essential research. anyway, so that's, i hope my colleagues will support me in this important effort. think is i think sort hihortsigo cut back those essential functions. another point that i alluded to, increasingly big tech firms, amazon, google, others, are pushing into financial soirchss including cloud computing for the largest banks. according to a recent readout of the meeting, cloud computing was a topic of discussion. my first question, in your view does fsoc have the authority to designate a cloud provider of being a systemically important financial utility? >> so at this point, and this is very fact specific situation, at this point the answer is no. but it is something we've discussed at the fsoc. >> do you have the authority if you've come to the conclusion

that they -- >> if we came to the conclusion. >> right. okay. i have a real worry that the constration of cloud pro vooifrds, it would be an interesting thought experiment to say what happens if for example there was a not too long ago a story in bloomberg about the possibility that chinese had put little hardware bugs in very widely used equipment inside cloud utilities. and if that is discovered at a single cloud utility where they have to replace a big fraction and have to be down for potentially months while that happens, this -- to actually think what that would do to our economy if aws went downtown for a month or two. >> as i highlighted cybersecurity is a big focus of ours. part of the reason we're focused on the cloud is we share your concerns. we want to make sure that no one financial institution is dependent and would be taken down by a cloud provider.

>> and in my remooining time i want to thank you for your response to the letter that congressm congressman -- and i sent to you. i think there's an essential government role there to leverage as the administration's position to leverage the real i.d. act to allow citizens who wish to have a way to authenticate themselves in a secure manner online. i think that's a fundamental necessity in a modern economy and there's an essential job for the government to provision that and many opportunities for the private sector to leverage adpigsal features on top of that. i want to thank you for your response and encourage you to continue. >> gentleman from illinois yields back. the gentleman from arkansas is recognized. >> great to have you back. appreciate all of your leadership. i just was so interested in

listening today. thanks for the regulators that we talked to yesterday for their swift implementation of s-2155 on regulatory reform. wee appreciate treasury's leadership on that. your work on strict sanctions on venezuela, north korea, iran, russia, you've demonstrated a lot of leadership there. and of course tax reform that's been talked about extensively. we're grateful for your leadership as our treasury secretary. i want to turn and mention a couple of things that we've talked about today. on the repo market that mr. pearl mudder talked about and the manking member, i think the concern is that the new york fed is not supporting the repo market. they are the repo market. i think that's the challenge. and we don't see the bank reserves that are more than adequate, billions more than needed, on jpmorgan, for

example, $120 billion in daily cash held at the fed on a $60 billion cash requirement. and yet they're not entering that repo market. i'm pleased that yesterday at the fsoc meeting you talked about this. because i do think supervision is an issue here and the stigma attached with something that was a regular part of our business lives which is running a daily inner day daylight over draft at the fed. on mortgage servicing i appreciated your comment there. again that business shifted out of the bank sector to the nonbank sector because of daud frank. and for five years that i've served i've tried to get the obama administration and now the trump administration to support the idea that mortgage servicing rights are not a derivative that should be treated in that meaner. it's a nearly as you know companion to the origination of

mortgages. i hope fsoc will lend its weight to allowing them to not have the capital penalties they have in dodd-frank. and were mr. foster, he and i have had a lot of conversations about digital currencies. jay powell just answered our letter on the idea of a digital token. i think the concept's a little misunderstood. if we warrant a digital future in finance and want to protect the pre'emnance of the american dollar as a reserve currency, this is an important concept. it's not anything except allowing our government to facilitate a block chain transactiontion process legally in the future. we have visa debit, mastercard, swift, fed wire, the ach system, all true, all private sector and

government participation. but this idea that there's a new rail block chain, banks and nonbanks can participate in to settle transactiontions through a token, it's coming our way faster that we'd like, perhaps faster than the five-year timeframe you outlined. i do think it's important to consider and have treasury's view of what your agent think over at the reserve in article one's currency. let me turn and ask you a question about world bank issues that we had a hearing a few weeks ago at the subcommittee on that topic, mull lat real development. there was no treasury representative. we had an illness that day. i talked about the legislative man dats put on our managing director and governor to direct votes at the fed. my question to you, mr. secretary, are you concerned

that that kind of governance to support or oppose a financing project ties the hands at the bank to being forced to abstain on voting? >> i am. >> and does treasury have an amount, a record of those extensions and that long binder i understand of rules that our governor has to follow? and is that something you can share with the committee? >> we can come back. it's a huge bureaucracy running all these tests. we keep the date awe. >> what i hear both from your former colleague and others, it reduces america's effectiveness to lead the bank. i think we'd be interested in working to reduce those mandates, remove the ones that are redund dantd and have your leadership. is that something you'd be interested in? >> we look forward to working with you. >> i thank you and yield back. >> gentleman from arkansas yields back. before i recognize the je gentleman lady from ohio, i

think we want to wish ohio a happy 29th birthday. >> this is how i wanted to celebrate it. >> i'd like to recognize now for five minutes the gentleman lady from ohio, miss beaty. >> thank you, mr. chairman, thank you ranking member, thank you to our witness, mr. secretary. and let me start out by saying thank you for the information that i received from you on working with your director, looking at the diversity information. and that was very much appreciated. so thank you. today mr. secretary, i wanted to share with you in yesterday's hearing with pru deshl regulators, several of my colleagues including congressman cleaver, raised the issue of minority depository ins strugss, specifically with the rate that they're disappearing. since as you know the financial

crisis of 2008, the number of mdis failed 31%. at the end of 2018, we only had 149 of these institutions left. mdis are incredibly important to the minority communities that think operate in. i'm introducing legislation today to codify the treasury's financial iejent mentor program. it's known as the expanding opportunities for mdis act. and i also want to say that i was just -- it was just brought to my attention that your staff had sent my office some comments and technical assistance on the b.o. last night. i am very appreciative to that. so can you briefly describe what the treasury's financial agent mentoring program will seek to accomplish and how your department came up with it?

>> well, first of all, thank you very much. and we're glad to assist on this. the protege program has worked very well. and the idea is to partner a minority bank with a large bank. and in that way the minority bank can get resources and training and help to run their business. and we share your concern. i think there should be an increase in opportunities for minority banks, not a decrease. so this is something i'm pleased. i personally wrote and asked many of the big ceos to help on this. we look forward -- i know we did work with you on some technical issues and we look forward to continuing helping you on this. >> i want to say thank you. was there a specific need that you thought you had to send the letters to the big banks? do you think it would help them to be more engaged to do it? or because you felt they weren't

doing anything? >> no. they were pleased. so i'd say, you know, kind of when we asked people to go into this protege program, people had been very receptive. and it's worked. and we look to scale this up. and we look to work with you on your potential legislation. >> well, thank you, because we have noticed that some of the larger banks who i have been very critical of their lack of working, increasing enough with their cras, participating on diversity and inclusion, so i would like to say, mr. chairman, and ranking member, people ask us all the time why do you talk so much about inclusety and diversion, this is more than just hiring them. it's also about if you have someone in the room and you're mentoring and working with people, it helps with the economy, it helps with jobs, therefore it crosses over that people can pay for their

housing, because we have a lack of affordable housing. it helps them with health care. it helps them with daycare and child care if they are in the room. so i again would like to say thank you rand mr. chairman i yield back the rest of my time. >> gentleman lady jeelds back. the gentleman from tennessee, mr. kustoff, is recognized for five minutes. >> thank you, mr. chairman and mr. secretary for appearing today. we've had questions today about the u.s. mexico canada agreement, and if i can ask you just in layman's terms, what is the effect to the he economy if in fact congress does pass the u.s. mexico canada agreement and conversely, what is the effect of the economy if we fail to pass the u.s. mexico canada agreement? >> if we pass we estimate it's in excess of 50 basis points a

year in gdp, which is very significant. this would create additional jobs, additional revenue for the government and consumer and businesses. and it modernizes trade with our two most important trading partners. i'm not going to speculate on what would happen if you don't pass it because i'm highly encouraged you will. >> i'd like to share your enthusiasm and i appreciate that. you received a question from mr. williams of texas about the fate of localization and whether there should be a federal standard. i'd like to ask you about india. i know that you were recently in india and we've read the press accounts about how india is trying to raise the bars. it relates to the data localization and frankly the restrictions on free trade as it relates to startups and other

companies. can you talk about what the barriers are for u.s. companies operating now in india and what effect that could have? >> well, again, in my recent trip, we've had very specific conversations. we've been dealing with them over the last year own this issue. we want to make sure, one, that u.s. companies are treated fairly and can compete. we have no issues with the countries want to have local data for regulatory purposes, they do that. it's the issue of eliminating data outside. i think as you know, we're in a global economy. we're in a scenario where data transfers, that data is processed in different places. so this is a complicated issue that we continue to work on to make sure that our financial services companies are treated fairly. >> not only financial services companies but also other companies that are operating in

india as well? >> that is correct. >> and treasury continues to work with the officials in india on that? >> we do. and we're also working very closely with ustr because it's a trade issue. >> thank you, mr. secretary. we've talked about the benefits of the tax cuts and jobs act, which no doubt has been a tremendous benefit to our economy and to our folks who live in the 8th congressional district of tennessee and across the country. one thing that we may not have gotten right in the tax cuts and jobs act is the quip as it relates to depreciation. and i think that's a technical fix, trying to resolve that. could you talk about the effect of trying to resolve that in terms of depreciation from 39 to 15 years? >> so let me just say this is

something that i hope this committee and others will help us with on a bipartisan basis. this was clearly a technical mistake. and what happened for retailers was due to a literally a technical mistake in the drafting, the amortization became longer as opposed to shorter. i think everybody acknowledges on a bipartisan basis this was a technical mistake. and this impacts an area of the economy which is retailers. it's a big part of the economy. we've been trying to get this fixed. i would hope it's something that congress next year will reconsider helping us work on. it was a simple mistake. and nobody is debating that. >> from your standpoint in treasury, it's something that should be resolved sooner rather than later or you would hope? >> it's our number one, two and three technical fix request. >> thank you. i yield back the balance of my

time. >> gentleman from tennessee yields back. mr. heck from washington is recognized for five minutes. >> thank you, mr. chairman. first i want to join with my friend from texas, mr. williams, in expressing my appreciation for the role that treesry played in the international insurance negotiations. i happen to be one who believes we should keep faith with the mccairn ferguson act. this is the best way. i think it's worked well. so thank you, sir. i'm also grateful that my friend across the aisle raised the issue of a tax cut and jobs act. i'd like to ask you about it. obviously at the time small technical fixes necessarily notwithstanding, i'm a cosponsor, i hope we get to it -- that we were promied that it would be a game changer. those were your words. a game changer for business.

it was broadly held as something that would lead to increased business investment. it hasn't. there's the chart. that's the chart of the bureau of economic analysis revealing that we've basically had six quarters of a significantly downward trend of business investment and capital. and i'm going to ask you why you think that is and what it is you think we ought to do about it, especially given the promises that were made. but i want to say first of all about why i care about this. i think it's pretty clearly established that there's a close relationship between increased productivity and increased wages. let's face it, the data is in. we've been fairly stuck on wage growth for the better part of 30 years in this country. while it's beginning to inch up, it's not really material in that increase. every upward trend is appreciated. but we still do not have wage growth. and presumably we do not have wage growth because we do not have increased productivity,

presumably because we do not have increased business investment, which we were promised. so mr. secretary, why not? and what should we do about it? >> well, first i kind of disagree with you. i think it actually has been significant. i think that for the first time in the last ten years we've seen wages growing and growing at a level that is meaningful to taxpayers. i think -- >> would you care to cite the data because it is not other consecutive quarters significantly outpaced consumer price index. this is coming on the heels of basically 30 years with flat line. >> we're happy to give you the charts but there's no question that wage growth has been

increasing and inflation has been very low. so happy to get back to you the data. >> the question is that downward arrow. we were promised an upward arrow. we haven't gotten it. >> to be honest with you, i can't really read that chart. i can read the capital spending. >> do you see the blue arrow? that's not good sir. >> i got the blue arrow. >> that's business investment. >> again, i don't know how you're calculating that business assessment. >> i'm not. the business of labor statistics is. >> there's no question -- >> one of my favorite adages is that some people use facts and figures the way i drunk used a lamp post, to lean on, not to illuminate. it's six consecutive quarters. i haven't in any way reshaped the graph or the line or the

data in any way. we're on a downward trend in business capital and equipment even though we were promised as a promise that would it would flower. >> first of all, we are the only economy in the world that is showing continued growth. that is not coincidental. we are -- >> economic growth of 2% now? that's what you're dragging about is a revised 10% forecast? >> those numbers if you'd let me respond -- >> please. >> as opposed to screaming at me. >> oh no, sir. i'm not screaming at you. >> gentlemen. >> those numbers were impacted partially by the boeing impact. those numbers were partially impacted by the strikes and i would say they've also been

impacted by a significantly slowdown in global growth. i think you're going to see growth quite significant in the pickup at the rest of the year and next year. so there's no question american taxpayers are seeing the benefit of tax cuts. >> thank you sir. >> the gentleman's time has expired. the gentleman from georgia mr. loudermilk is recognized. >> thank you. first, i want to thank you for directing treasury to put america first and standing strong for american interests during the recent international insurance negotiations. i think you must be very cautious about imposing u.s. standards on insurers. i'm glad treasury has shown its official opposition. i want to talk to you about the

national sassociation of agents and brokers. a director of the board member nominated by the president and confirmed by the senate and this hasn't been done. last time you were here we discussed that and you committed you would speak to the president about how important it was to get these nominations done. i just wanted to follow up and find out where are we on that process? >> we've put in recommendations and it's going through the process and we'll follow up with you again as we suggested. >> i appreciate that if you could stay on top of it. it's very timely and i'm concerned with timeliness right now of the senate because if we proceed with impeachment as it appears we're doing, we're about to shut down the senate for maybe two months or longer and not being able to get anything else done. so i appreciate that. i'm also ranking member of the committee's intelligence task

force. earlier this year we had a hearing regarding customers' digital identity. the task force chairman and i recently sent a letter to you asking to move forward with some of the recommendations of the 2018 fin tech report and just wanted to find out what action treasury has taken to work with the private sector on solutions to digital identity issues. >> i think as you pointed out, this is something that we identified early on. it is something we continue to work with the private sector. it's also something i'm very interested in because of the irs and from the government standpoint as well. it's something we look forward to continuing to work with you on. it's an important issue. >> if you could keep us up to date on progress made, that would be very helpful to us as well. fsoc formed the digital assets working group to explore issues

surrounding blockchain technology. state banking regulators have been excluded from the working group and dodd-frank specifies that nonvoting members such as state banking regulators must not be excluded from fsoc activities. i think it's important that we have our stakeholders in the state involved. do you know why state regulators have been have been excluded from the working group? >> i don't. it's not intentionally. if the state regulators want to be part of it we'll absolutely accommodate them. >> i appreciate if you could keep us abreast of that. i also want to close out by thanking you for your part of this robust historic economy that we have. i see that we could even add another $68 billion into this robust economy if we could move forward with the usmca which i

hope that very soon we could put the american people first and get forward with that. with that i yield back. >> the gentlewoman from michigan ms. tlaib is recognized. >> thank you for coming before our committee. residents in my district have the third poorest district in the country. we're still recovering not only in detroit but even the wayne county communities throughout my district. one of the things we did through dodd-frank is created the financial stability and oversight. that kind of oversight of shadow banks is going to be critical, too big to fail banks and so forth. under your tenure so far -- and again, i would love to hear your vision of what you think this consul is supposed to do because so far under your tenure, secretary, you dropped the appeal of the district court's decision and metlife lawsuit.

i think there is not one single nonbanking institution that is designated as too big to fail or what we call a systemically important financial institution. what is the direction we're going in if we're not doing any oversight? dodd-frank, the whole purpose was so we don't have another downturn economic recession that led to predatory practices by these big banks. >> i share your concerns on the issues. we are doing a lot on oversight. >> but you don't have anybody to regulate. >> again -- >> not one single institution, correct. >> again, that's a good thing. that's because the -- >> you think metlife, prudential, none of those are too big to fail.

>> that is correct. g.e. capital was dedesignated prior to us coming here. it encouraged all these companies to derisk so they wouldn't be regulated by the fed. they have proper regulators. i want to be clear. the committee's job is to bring all the regulators together to make sure the primary regulators are regulating these entities. >> by dismissing the case, we don't have that much authority now that we've walked away by saying they would fall under certain guidelines for oversight. >> actually that's not the case at all. we have the same authorities we've always had. the only issue was the cost benefit analysis which we think was required by law. i just want to be clear. it's good news to the economy that we don't have anything dez designated. if we were sitting here with lots of entities designated,

that would be a major concern of ours. >> i would like to submit for the record strengthening the regulation and oversight of shadow banks to the record. >> without objection. >> do you believe in socialism for corporations? >> do i believe in socialism for corporations? >> i do not believe in socialism for corporations. >> thank you very much. i yield the rest of my time. >> gentlewoman yields back. the gentleman from ohio mr. gonzalez is recognized for five minutes. >> thank you mr. chair and thank you secretary for being here. i've been working with your staff on some world bank reform issues and just want to thank you for your collaboration on that. to me, i think when i look at the world bank, the number one issue is ensuring that china graduated from the loan program. it's unconscionable to me that

our taxpayers should be subsidizing the chinese growth model. my understanding is today at this very moment or maybe it's already happened that china's country partnership framework is going to get a vote at the bank. i couldn't access the document. that's not your fault. it wasn't on the bank's website. my understanding is it provides loans for $1 billion in perpetuity and assistance in advancing the chinese growth mod internationally, it has social credit scores on its own people and obviously what's going on in hong kong. huge issue for me. just at a basic level, do you agree with the graduation objective? >> i do. >> secondly, what's the best way to ensure that occurs? right now it feels like we have

our hands tied behind our back despite the fact we're the largest shareholder and have veto authority. it still feels like we have no ability to affect this. >> i don't think that's the case. this is something that david mall pass worked on with the world bank when he worked for me, this was his number one issue. reforms now at the world bank and leading the world bank. he's worked with china. china i understand is cash flow positive this year meaning there's more cash coming into the world bank than cash going out. i believe they're going to be under a billion dollars this year and he's working towards them. by the way, in the china program our executive board member has objected to the program and i think that gets read in and ultimately that will be on the world bank's website. >> we do technically have veto power, right? can you explain how that would work? >> just to be clear, we don't

have veto power over every single loan or veto power over a specific statement. we have veto power over capital allocations and other issues. again, i have great confidence in david mall pass. we all share the same objectives. >> i appreciate the progress. but for me even a dollar is too much for our taxpayers to be contributing to china. as you may know, i've also recently introduced legislation to support the policy that you just articulated to transition china off bank lending. i appreciate your staff's feedback and look forward to further collaboration. another section of my bill deals with debt transparency with respect to the belt and road initiative. i see providing debt management as a vital piece of our national strategy. can you talk about the current strategy and efforts to provide

debt management assistance at the world bank and the imf to borrowing countries of the belt and road initiative? >> we have a lot of support support at this issue. it's very important that china play by these roles and direct discussions with them. >> thank you. >> as conditions we've demanded transparency on exposure. >> thank you. i look forward to continuing to work with you on these issues. shifting a bit to the prushl regulators a little this week that promotes investment opportunities and startups of small businesses. i know the volker regulations

are considering revisions. prior to this job i ran a silicon valley tech startup. very easy to acquire capital in that industry. less so where i'm from in northeast ohio and where i represent. can you talk about your thoughts on this issue and how it would impact private capital flowing to communities? >> i commented on this earlier but we are working on the regulators and i hope over the next 3-6 months we can address this. it will help small businesses. in no way is going to impact systemic risk. >> thank you. i yield back. >> the gentleman from illinois mr. casten is recognized for five minutes. >> thank you. i introduced hr-5191 the climate change financial risk act to

create a climate change risk subcommittee within fsoc and report annually on systemic risks of climate change to the financial system. the reasons for that and i'm sure you know this but just to reiterate, 2016-2018 average economic losses from natural disasters were $150 billion. i just returned from madrid. the goal of the paris agreement is to stay under 1 1/2 degrees of additional warming. we are at 2 degrees of warming. at 8 degrees manhattan feels like qatar essentially. it's really unpleasant. at 4 degrees of warming, the global losses could hit $23 trillion per year. there are already predicted to be 311,000 homes that will be regularly inundated ed by 2045

millions by the end of the century. this dwarves the financial crisis. by any analysis that is systemically dlasisastrous. have you consulted with any climate scientists in coming to that conclusion? >> so again, let me just preface. i have expertise on a lot of issues. climate is not one of them. >> that's why i'm asking who you consulted with. >> i think there is a place and a role to study the climate issues and the impact on the economy. i don't think f sock is that place and i think there's plenty of other areas. >> if i could, does the office of critical infrastructure believe there's no systemic risk from the climate crisis? you're not an expert in cyber terrorism either. >> actually i have become an

expert in cyber terrorism. i spent a lot of time on that because that is my primary responsibility. >> i'm saying there are systemic risks that the office of critical infrastructure has concluded. have they concluded that climate change is not a systemic risk? >> i don't believe they have concluded that it is a systemic risk. i don't know in the negative if they've concluded it the other way. let me just comment. outside of the united states there are some areas where climate issues are very, very, very significant. i think the u.s. has made a lot of progress on this. >> no, we haven't. we are not on a sustainable path. let me throw some numbers. likely sea level rise, we already know if we went to zero co 2 tomorrow we still got another 2 feet baked in. realistically we probably have meters.

there are $900 billion of u.s. homes that are underwater by the end of the century. has f sock analyzed how that would impact the financial system? >> not to my understanding it hasn't. >> the projected private investor losses globally is somewhere between 4.2 and $13.8 trillion depending on the scenario. as f sock estimated the effect on systemic financial stability from those losses? >> again, as i commented earlier there is a place and role to analyze these. i think that the issue for f sock is to make sure banks have proper disclosure. i don't believe this is a systemic risk that warrants f sock review. but i'll discuss it with the committee. >> the concern and just as i think about these things, obviously none of us are rooting for this. but if i am an insurer and i'm

looking at these risks out in the future at some point we start to get to the point where those policies are coming due i'm going to change my risk profiles. i'm going to stop insuring certain sectors. we've seen the maps of the country and where you won't want to live and where we're going to have crop failures. just before i left for paris i watched "planes trains and automobiles" with my daughters. we're going the wrong way. we know we're in the wrong lane. we know there's a couple trucks coming down the highway at us. if you don't think that f sock should do it, i guess i respectfully disagree and that's why we introduced the bill. i think we need to look into these risks while we can swerve while we still have time.

>> gentleman from tennessee mr. rose is recognized for 5 minutes. >> thank you. welcome secretary mnuchin. one of the defining tenets of our insurance issue is that it is by and large state regulated. it is the strength of the country and it is something we need to defend. like so many of my colleagues here today, i want to thank you for your efforts to defend our state based insurance regulatory regime for your close and collaborative work with the state insurance commissioners and for registering treasury's official opposition to the ics or international capital standard in abu dhabi. i know there's still work to do to ensure foreign bureaucrats don't tick tadictate the rules . obligation. i hope you will continue to engage with members of congress and the state insurance commissioners as we move

forward. since the ics was adopted, what are some of your main concerns with the current framework? >> well, let me say i'm pleased to hear that there is bipartisan support on this issue. we do very much support the state regulatory mechanism for ininsurersh insurers. we are concerned and we've expressed these concerns that although they aren't required to be adopted, that it could force the industry in a way that is detrimental to our leadership and our state based regulators. >> vice chair quarles said in his january 2019 remarks at the american counsel of life insurers that the federal reserve's building block approach could strike a better balance between entity level and enterprise-wide supervision of insurance firms, which would facilitate the continued robustness of product

availability here in the united states. i believe part of the intent behind developing the bba was that it could be deemed comparable to the ics. are you familiar with the bba? >> i'm not completely but i will follow up with your office. we have a lot of people who have experts and have spent time on this focused on it for me. >> okay. thank you. do you think that the bba based on what you know now the bba framework could eventually be recognized as an outcome approach to the ics and would it be preferable in your opinion? >> again, i want to get back to you on that. i believe that's the case, but i want to get back to you on that issue. >> to reiterate, i believe it's important that we as members of congress also continue to voice our bipartisan support for the state based insurance system. so along those lines i want to

thank my colleagues mr. heck and mr. bud for introducing the international insurance standards act. is there anything else that you're aware of that we as members of congress should be doing to help the usa's position on the ics? >> i think not at the moment. you've been very supportive working with our office. we had a lot of bipartisan support as we went with team usa to represent these issues. >> transitioning over to some other issues, i wanted to ask you about f sock's work on the transition away from libor as a reference late. libor is set to be phased out as a bank reference rate by 2021. from the f sock september minutes i understand libor is the underlying rate for 200 trillion in contracts world wide. i know this will cause a bit of

disruption in our market and the committee's preferred alternative to libor is the securitied overnight financing right. what makes the sofr the best alternative? >> the most important issue is that we have a transition from all these loans and securities. the thing we like about sofr is that it's a very liquid market, it can't be manipulated and it's readily calculable. there may also be no different than libor loans and prime loans, there may be more of a credit oriented index that developed as well. we're very focused on the transition. >> as we transition from libor to sofr what sort of out reach is treasure doing to engage with stakeholders as attention to the libor transition increases?

>> we have a huge group working on it as i mentioned yesterday myself, chairman powell and a bunch of the regulators met with ten of the ceos and we continue to have outreach working on this. >> thank you. >> the gentlewoman from virginia ms. wexton is recognized for five minutes. >> in september the house passed the uyghur human rights policy act which is bipartisan legislation that was authored by senator rubio and cosponsored by 44 senators and 130 u.s. representatives including many on this committee. this week the house passed the uyghur intervention and global humanitarian unified response act or the uyghur act. both these bills seek to hold officials in the chinese government responsible for the gross violations of human rights in china's uyghur autonomous

region including the mass internment of over 1 million g uyghurs. the uyghur act passed 407-1. would you recommend to president trump that he sign these bills when they come across his desk? >> i'm not going to make any comments publicly about what my recommendation will be to the president one way or another, but that doesn't mean i'm not recommending it. >> okay. because we're getting mixed signals from the white house officials and reporting is suggesting that treasury department and you in particular are responsible for blocking or slow walking em ining efforts t chinese officials accountable. >> no, that's not accurate. >> i'm going to read from an article october 8th, 2019, "new york times" article, which i'd like to submit for the record. >> without objection. >> senior officials in the national security council and in the state department have pushed for use of the entity list to

target chinese companies supplying surveillance technology to the security forces. they have also urged mr. trump to approve sanctions that would penalize chinese officials and companies involved in abuses. but top american trade negotiators including treasury secretary mnuchin have cautioned against policies that would upset trade talks. are you saying that is inaccurate reporting? >> that is inaccurate reportedireported i and i think you know how we feel about the "new york times." >> but are you willing to sacrifice human rights abuses for the sake of trade talks? because it certainly appears that way. >> i'm here to talk about financial stability but i will respond. i very much am concerned about human rights issues all over the world. we administer global magnitsky sanctions all over the world on sanctions. we've administered things in

china as in other places, but i'm not going to make any comments on confidential discussions i have with the president on these or other subjects. >> related to that, back in april i joined a number of other members of congress and the senate. in a letter addressed to you, secretary pompeo and secretary ross urging the administration to impose global magnitsky sanctions on senior policy leaders who were complicit in these gross violations and human rights abuses including the so-called architect of the roundup of uyghurs. we never received a response from you. while i have you here what is the response on sanctions in china? >> i thought state had responded for that letter on behalf of all of us.

we'll get back to you. i thought state responded from all of us. we don't make comments on future sanctions at all. although i will tell you wherever we get letters, we take these things seriously. >> that letter was sent in april so it's more than 6 months ago. we've gotten no response and there's been no action by treasury. >> again, if the letter was written to all three of us, it's common that one agency responds if it's an interagency issue. it's not common that we all respond. did the state department respond to you? >> yes. but they did not respond on treasury's behalf. >> again the way we work on interagency issues is the primary agency that's responsible for an issue responds. again, i won't comment on future sanctions other than to say that article is inaccurate. >> while we're discussing human rights violations, i want to follow up on a question i asked you last time you were here

about 6 months ago. when is the administration going to hold mohammed bin salmon responsible for the murder of jamal kashoggi? >> again, i don't see what that has to do with financial stability. i was the official who went over after secretary pompeo. we had very direct discussions about our concerns on these issues. >> the time has expired. the gentleman from indiana mr. holingsworth is recognized. >> good afternoon. i appreciate you being here and i appreciate your continued efforts at the treasury

treasure you get both price and volume information after the fact which has led to increased kp kp competiti competitiveness. i know treasury has been looking into that and said they were going to start disseminating volume data but weren't going to put out pricing data or volume data that were very close to those trades. i was curious why that decision was made. are there further steps that are going to be taken to release more data around transition in the treasury market? >> let me respond. this is a complicated issue. so first let me just say the

u.s. treez market is one of the most liquid markets in the world. we've studied this carefully and trying to balance the disclosure issues and whether that is going or hurt or help the market. as you look at some of these other markets and you look at the data, there is less liquidity in a lot of these other markets. part of the reason there is less liquidity also has to do with the volker rule. when you look at transaction costs, you have to look at transaction costs in the context of overall liquidity. we're happy to come and talk to you about it but we want to make sure we get this right. if it were clearer to us that

releasing all the data would create more liquidity and transparency, we'd be doing it. >> we understand to do no harm philosophy. i stipulate to you that it seems to be a well functioning market. there have been some blips along the way, october 2014 notably. it's hard for me to imagine the potential harm from transparency in price and volume data. i understand that you want to do no harm but it's also hard for me to understand what that harm might be. >> i think there are times when we've got back and looked at the data as it relates to other markets. there are times when releasing the data hurts liquidity. i'd also say another interrelated issue is the advent of electronic trading and a larger and larger portion of the government market is from people who virtually invest no capital

but take advantage of sophisticated algorithms. again, i want to make sure that the release of data, again, actually is helping the market and not just creating arbitrage opportunities for people who want to do electronic day trading. >> totally agree. i don't want to be pejorative to those who are taking advantage of those small arbitrage opportunities because they are helping to close the market in a real meaningful way. i don't want us to make a decision because we want to prevent somebody from being able to take advantage of that and not providing the transparency the market may benefit from. i agree it is well functioning today and many days but i want to ensure that transparency is an important part of that market going forward. it's just sometimes hard for me to understand what harm might come on account of that. i understand you guys have looked at other markets and seen some adverse effects of

liquidity. it's hard to hold everything conteco consta constant. i republican respect the fact you have a lot smarter people than i over treasury to look at that. i wanted to transition and talk aboutthe taxpayer first act. it included a provision that people receiving permission must come down to the permission of taxpayers. there's been some guidance by the irs that is for all transcripts, for everything that is sold after decemberie and fr. it is important to the functioning of the market. >> the gentleman's time has expired. >> i-year-o yield back. >> the gentlewoman from iowa is recognized for five minutes. >> thank you, chairman and thank you secretary mnuchin for being

here again today. i know that we've heard a lot of criticism about the 2017 tax cuts as primarily benefitting the richest americans. i absolutely think those are accurate but that's not what i want to focus on. what i'm interested in looking at is how the irs is treating the wealthy. the "wall street journal" reported that irs audit rates for people making more than $10 million a year have dropped more than 80% in just the last four years. why are the top 1%'s tax returns being looked at so much less frequently? >> that's actually not the case. i'm working with the irs to release the data, because one of the issues is the way the irs releases the data now is on closed cases, not open cases. but i can assure you when i saw that article i had the same concern. i called up the commissioner and i said we should be doing more of these audits, not less. we are going to release this data in a transparent way to

assure you that the people who are making the most money are getting high audit rates. >> that's fantastic to hear. >> by the way, if you want to give us more money for enforcement, i'm happy to take it. >> we will absolutely talk with you about that. i think that's a great idea. are you telling me then the number is much lower that is being audited? >> no. it's higher as a matter of fact -- again, this is the problem in the data you guys just gave me. the way we report the data is on closed audits. these audits take obviously a long period of time. i'm happy to come back and i'm going to get the irs to release publicly. the way i think we should be looking at the data is for each tax year what percentage of an income group are we auditing, not what percentage has closed

in that year. >> that would be great if you could get that to this committee as well as if you could make sure it tells us what percent is currently being audited. >> what people want to understand is not what percentage of the audits were closed in the a year. in a tax year what percentage of those people will be audited whether it was closed in 2018, 19, 20. we'll get you the data. i can assure you i had the same view when i saw it. >> i'm glad to hear that. my concern is that i just want to make sure that those who are the wealthiest among us in the country are being audited at the same rate other folks are. what we can see right now it shows that they're being audited at a much lower rate. if you can provide us with information that differs from that, i would love to see that. the next thing i want to talk about is back to the 2017 tax

law. included two provisions intended to limit the use of tax havens for multinational corporations. the irs's own data shows that in 2016 u.s. operations booked more than $33 billion of profits in bur bermuda despite having only 384 employees there. that's more than $85 million per employee. i know that data is in 2016 before the tax cuts were passed. i'm using it because that's the last information we have. has there been a significant reduction in profits booked in bermuda in 2017 or 2018 data? >> i don't have that data. we're happy to look into it and get back to you. part of the reason we moved from the global tax system to a territorial system was to basically prevent people from moving to tax havens and make sure that the u.s. taxed

companies fairly. >> great. i'm so glad to hear that because from what we're seeing that's not happening. i'd love to see if we're making some improvement on that. obviously i want to limit corporations' use of tax havens. we need all that money here in the united states to address things like infrastructure and things people in this country need. what suggestions do you have for continuing to work on curbing the use of tax havens? >> again, there were many regulations we put out through the last two years on the tax act that limit these types of things. again, we're happy to follow up with you specifically on some of them. >> and lastly the european union has actually had success in reducing tax havens simply by requiring public disclosure of country by country income. is that something you think might help? >> not necessarily although i will say a lot of the information exchanged with the

europeans is helpful in looking at tax havens. >> thank you. >> the gentlewoman from new york ms. ocasio-cortez is recognized for five minutes. >> thank you. i looked through the minutes of the f sock meetings this year and i didn't see any mention of student loans. the total outstanding student loan debt burden is now at over 1.5 trillion. young people are waiting until their 30s and 40s to have children, buy a home. do you believe that student loan debt currently poses a major risk to our financial stability? >> i share your concern on student loans, although i don't think it is a major risk to financial stability. i can assure you on an interagency basis we are working with the department of education and the nec because i think in many cases people have taken out student loans that have created

certain issues for them. so student loans are a large part of the debt and that's something we're carefully studying. >> so it is a problem but not a major risk to financial stability. i just wanted to run through a few different topics here. i also didn't see any mention of climate change. do you believe climate change poses a risk to our economy? >> you may have missed my comments before on this. >> apologies. >> i acknowledged that climate change should be discussed in certain areas. f sock is not an area where i believe it should be discussed. based on previous discussions, i said i'd raise that with the committee. >> let's talk about leveraged lending. it is up 20% this year with a total outstanding balance of over 1 trillion for the first time. i heard earlier you don't think it poses a threat to our financial system either. is that correct? >> not at this time.

specifically it doesn't pose a threat to the banking system between clollateralized -- >> not at all. >> what about medical debt? we spent about 3.3 trillion dollar on health care last yeyear. that's up more than 20% over the last five years. do you believe that medical debt poses a significant risk to our financial system? >> i would say this is not an f sock issue but putting on my treasury hat we are concerned about the rate of growth of medical expenses and that is something we're trying to look at many different things. because that does pose economic issues although not financial stability issues. >> what about housing? i see some mention in recent f sock minutes about mortgage origination from non-bank lenders. i'm assuming you at least agree that there are some problems in the housing market that can pose threats to the stability of the financial system in that

respect? >> i commented earlier we are monitoring the amount of the mortgage market that's moved out of the banking system. particularly we're focused on non-bank servicers that don't have liquidity. we hope to work with this committee and others on housing reform. it's an important issue. >> what percentage of mortgages were originated by non-banks this year? >> i think it's roughly 50%. >> so half of mortgages in america are being originated by non-banks. that puts them outside the usual scope of regulation, is that correct? >> no, not outside the usual scope of regulation at all. it's outside of the banks. so it is something that we're looking at carefully. again, a lot of those loans are sold to fan knee and freddie and are insured through fha. so we are looking at it through those regulators.

>> the shortage of housing is down more than 15% in several large metropolitan areas. does the fact that this market seems to be slowing down, does that pose risks to the financial system? >> again, not risk to the financial system but affordable housing is something we're concerned about and making sure that there's greater access to affordable housing. not an f sock issue but a treasury issue. >> we've got here student loan debt does not pose a risk to financial stability, climate change potentially, leveraged lending does not, medical debt does not, mortgage origination does not. what are some of the largest risks to our economy right now and the financial system? >> i don't know if you had a chance to read the report, but if you just look at and we highlight cyber security,

structural issues, alternative reference rates, risk to the credit expansion. we specifically talk about non-bank mortgage origination, financial innovation, housing, finance. >> do you see there's kind of a decoupling here with the quality of life from what we're seeing in terms of measurements of financial stability? >> i'm not making that connection, but i'm happy to explore that. >> okay. thank you very much. >> the gentleman from kentucky mr. barr is recognized. >> thank you, madam chairwoman. mr. secretary, you're almost at the end of the line here. i was compelled to come back and take my five minutes. i wasn't originally but i had to ask you to elaborate a little bit more on your dialogue with my friend mr. heck from

washington on capital expenditures and tax cuts. my views on this, having spoken to many manufacturers and ag businesses in central and eastern kentucky is that there's no doubt that -- accelerated business investment, improved productivity. most of the ceos and small business owners said that tax cuts were huge in terms of pulling forward investment that they needed to do to enhance the productivity of their businesses, large and small businesses told me that. and it's made their employees more productive. and so my theory is when you look at mr. heck's chart of declining cap ex, it certainly wasn't caused by tax cuts. tax cuts may have pulled forward a lot of capital expenditures and business investment. but when most private sector people tell me is that the decline in capital expenditures is not attributable to anything

other than trade uncertainty. also they note, many of them, we would continue to invest in a capital and equipment purchases and other items that would make their businesses more efficient and more productive if the democrats would stop opposing making those provisions permanent in the tax code. the uncertainty of not having permanency with bonus depreciation and expensing provisions is maybe an impediment for continued cap ex. i want your thoughts on that feedback that i'm getting from actors in the private sector on cap ex. i also want your opinion about how trade uncertainty is contributing to a pause in additional business investment. >> so first of all, thank you for coming back. there's no question from the companies that we see visiting all over the country that there have been major capital

expenditures as a result of the tax cut act. and as you've said, this incentivized companies because they get automatic expensing. when people ask about will the tax cuts pay for themselves, i remind them this has to be calculated over a ten-year period of time because this was designed to stimulate investment and lead to expensing in year one which will recoup later. in response to trade, i h say there's a lot of people waiting on the sidelines because of usmca. i'm hopeful congress will pass it between now and the end of the year. it's the single most important economic trading relationship we have. there's no question that passing it will add something like 50 basis points to gdp and will increase capital expenditure. >> usmca is why we don't have that line continuing to grow up

in terms of capital expenditures. so the best thing we can do in a bipartisan way in this congress is to pass the usmca. i would argue that's going to give you and ambassador lighthizer momentum with china and the eu. i encourage my colleagues on the other side of the aisle to join us in supporting this renegotiated north american trade deal for all these reasons. i want to talk to you about leveraged lending. lots of hand bringiwringing on other side. i wanted to ask you your views on clos in particular as non-bank investor vehicles taking some of this leverage out of banks, federally insured depository institutions into these clo vehicles and the extent to which clo's as non-market long-term vehicles provide liquidity and could provide liquidity precisely in

the time where we need it in an economic downturn and to that extent offer the financial system a tool, a financial stability tool. and that if we overreacted to leverage lending particularly if we overreacted to clos that that could actually have a destabilizing effect and limit liquidity right when we need it. >> i would agree with you and i would even go one step further which is a significant problem of the financial crisis was there was too much high risk mortgages in the banking system. so the good news is the higher risk leveraged lending has moved out of the banking system into permanent capital vehicles. >> thank you. i yield back. >> the gentleman from texas, mr. green who is also the chair for the subcommittee on oversight and investigations is recognized for five minutes. >> thank you, madam chair and

thank you for your appearance, mr. secretary. mr. secretary i'm on a mission of mercy. here's why. in 2008 we had 215 minority banks. 20 2018, 149. of the 149, 23 are said to be african-american banks, meaning 50%, more than 50% african-american ownership. and it seems according to the icba the independent community bankers of america, this is dated october 22nd, 2019, these 23 african-american owned banks have assets of $5 billion, total assets, $5 billion.

i'm on a mission of mercy because usually these banks are in neighborhoods wherein the people are not high income earners. they are underserved neighborhoods. they're economically distressed neighborhoods. and they are neighborhoods in need of banks, but these banks need additional capital. so when you mention your small bank mentorship program, it really made my heart warm. i really would like to know how this program will help me with my mission of mercy to help capitalize these small banks that i no longer call community banks. i call them neighborhood banks. community banks 10 billion. these neighbor banks, if they can get to a billion there would be a great celebration. can you please share some

intelligence on the topic? >> well, i share your concern. i mean, it's really terrible that these numbers have dropped as much as they have. these are, as you said, to some communities that really, really need these banks. the protege program is a step in the right direction of helping these banks. we need to work with the regulators. we need to work with private capital in making sure these banks have access to capital and can grow and we turn these numbers around the other direction. >> how far along are you with the program? my understanding is that you have a departure date that is certain in your mind. i'm not sure it's been published, but will this become viable before you leave? >> i wasn't planning ongoing anywhere any time quickly, so yes. >> i heard rumors, i'm sorry, that you might be leaving.

>> leaving when? i said i'd stay through the second term. >> through the second term? my apologies. you're talking to a guy who is proud to apologize. i apologize. i'm glad to know you'll be here. so the question becomes how can we collaborate and work together in a positive way to affect positively these african-american banks? and i'm saying african-american because they're at the lower end of the totem pole. no other community, no other banks when you take the aggregate are in this kind of dire circumstance. so i really want to work to get some help. >> i'm going to ask my staff to schedule a meeting to get together with you. maybe we can try to do it in the beginning of january and figure out how we can work together. >> i absolutely assure you that i will look forward to this meeting.

one additional thing about these banks. i have many of them in my district. and they take pride in what they do. they have good personnel. but they don't have all of the technology that other institutions are blessed to have and they don't have obviously the clientele, but there's a willingness to grow and to work with larger banks. this protege program pairing smaller banks with larger banks can reap some good benefits if it's done appropriately and properly, so i'm eager to hear more about how we can do this pairing and to work with some of these banks, these small african-american banks. thank you and i yield back. >> thank you. the gentleman from missouri, mr.

cleaver is recognized for five minutes. >> thank you, madam chair. mr. secretary, thank you for being here. i appreciate the response, your response to my letter in which i discussed issues surrounding the rise of white supremacy and the el paso attack and specifically i don't think there's much question that that attack was motivated by white nationalism. in my letter i talked about the treasury department's ability or the tools you had available to

challenge and hopefully even curb the rise of these acts of white nationalist terrorists. in your letter you talked about the fact that you shared my concern over the racially and ethnically motivated violent extremism and then said you would use all the tools available. but you also said that, you know, you did not want to comment on any investigation, which i understand and appreciate. what i would like to know, however, is -- well, based on what the fbi director which is, quote, he said a majority of the domestic terrorism cases

investigated are motivated by some version of what you might call white supremist violence. and 40% of the 850 domestic attacks were racially and motivated and i was a victim myself as my congressional office was firebombed and the gentleman was caught, so i don't need help there, but i do know that, i mean, i wanted to see where you are in terms of curtailing the financing of the criminal networks, and i'm not asking you about what happened in el paso, but in general the criminal networks that i think that all of our, that our intelligence counter intelligen intelligence parts are out there

and that is what they are saying, and there something going on in treasury where the networks are being targeted? >> let me just say that i didn't realize that our office had been atta attacked and that is horrible. let me just say that any of these attacks are despicable. as it relates to the treasury role, there is a significant role to work with all of law enforcement. when i was a banker and i used to send in all of the sars and i used to wonder if they went into the nowhere land. i can tell you that these activities and us being able to follow the money is very important in us being able to fight all of the different activities. >> but, so, is there a unit in treasury that is actually following the money? >> there is. so there is two units.

there is both finsin, and they are the ones who take in all of the data and they have huge analytic programs that work with all of law enforcement, and the other areas are rtfi area which is less domestically and more internationally, but to the extent that there are domestic issues that we work with law enforcement as well. >> all right. madam chair. thank you. i yield back. >> thank you very much. i'd like to thank the secretary for his time today and without objection all members will have five legislative days in which to submit additional written questions to the chair which will be forwarded to the secretary for his response. i ask the secretary to please respond as promptly as you bank deregulation, and it suggested if congress raised the $50 billion threshold of which the u.s. banks are under strict

oversight, the congress should do the same for the mega banks or foreign banks. earlier, they followed that and deregulated four mega banks which is an item on a wish list published in 2014. and there is a lot of concern about this, but the most glaring is deutsche bank, and you are familiar and the chairwoman is familiar with deutsche bank that they have to submit their living will once every six years, and this is the same deutsche bank within the last six years had a surprise $3 billion quarterly loss. i don't know how you lose $3 billion and you don't see it coming and failed the stress test for three of the last four years and fined for a trading scandal for laundering money from russian oligarch, and violated the u.s. sanctioniran, the sudan.

why are you advocating, and why did you advocate to deregulate one of the worst corporate recidivists operating in the u.s. banking system particularly when it is not even a u.s. bank. >> let me first say that i share many of your concerns about deutsche bank. i obviously can't comment on any of the specifics, because from a regulatory standpoint, it would be inappropriate for me to comment specifically on deutsche bank, but i share many of your concerns, and particularly the sanctions is invasion is something that we will not tolerate by anybody domestic or internationally. and i think that the issue, and i will add to this generically, and not as it relates to deutsche bank, and the question is that the banks will be regulated. and so the u.s. subsidiaries, and the way that we have changed the structure, there is

intermediary holding companies so that the foreign subs that are effectively u.s. foreign institutions, and we can look at the risk at that level. >> i understand the sub-series of foreign relationship, but i don't understand why we would do something that is deregulating one of the worst actors in the marketplace and in particularly when it is a foreign bank operating on our soil and threatening the stability of our markets. i understand that there is a balance of regulating the industry and stifling capitalism, but if you do share my concern about deutsche bank this gives us one less tool. i wanted to ask you about something else. how many people currently work at fsoc, the fiblt stability ov -- the financial stability office

committee. >> i answered this previously and -- >> i am asking about the direct number. >> there are hundreds of people if you add up the number of agencies -- >> no, i mean the sole number of whose sole job is to work in fsoc. >> the office of treasury, and the office of research, because we cut them significantly, because we felt that those resources were not going to be used appropriately. >> because financial research is valuable? >> we did not think it is the best use of taxpayer money, and so it is a function that we felt that the resources within the different agencies, which are quite ample and quite significant that are dead kaare to this. >> i wanted to be clear. how many people work at fsoc and only at fsoc? >> well, it is -- >> is it a secret?

>> when you say at fsoc, and are you referring to within the treasury -- >> well, since you are the secretary of the treasury, we will start there. >> and again, we have about 10 people that are directly in the treasury work on that, but we have probably 50 people within treasury -- >> does anybody work just for fsoc? >> yeah, there is a small number of people. >> how many, sir? >> again, it is roughly, and slightly less than a dozen people. >> less than a dozen. >> yes. >> do you know what the maximum number was at the height? >> again, comparing it to the middle of t.a.r.p., in the middle of the financial area, and by the way, there were not -- >> thank you very much. >> let me start over again, and i would like to thank the secretary for his time today and without objection, all members will have five legislative days in which to submit additional

written questions to the chair which will be forwarded to the secretary for his response. i ask the secretary to please respond as promptly as you are able. without objection, all members have five legislative days in which to submit extraneous materials to the chair for inclusion in the record. thank you very much. this hearing is adjourned. >> thank you very much.

and we stay on capitol hill

for more live coverage. the house armed services subcommittee is continuing a series of hearings on whether or not to privatize military housing. the members will be hearing from the representatives of private builders and lenders. you are watching live coverage on c-span3 waiting for the hearing to come together in the committee room.

my colleague mr. lamborn is tied up with voting in the natural resources committee, and he is going to be along shortly. mr. scott is going to stand